Microeconomics Chapter 10: Pure Competition in the Short Run

market structure
The characteristics of an industry that define the likely behavior and performance of its firms. The primary characteristics are the number of firms in the industry, whether they are selling a differentiated product, the each of entry, and how much control firms have other output prices. The most commonly discussed market structures are pure competition, monopolistic competition, oligopoly, pure monopoly, and monopoly.
pure competition
A market structure in which a very large number of firms sells a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no nonprice competition; a market characterized by a very large number of buyers and sellers.
pure monopoly
A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found. Product differentiation is not an issue.
monopolistic competition
A market structure in which many firms sell a differentiated product, entry is relatively easy, each firm has some control over its product price, and there is considerable nonprice competition.
oligopoly
A market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and in which there is typically nonprice competition. So each firm is affected by the decisions of its rivals.
imperfect competition
All market structures except pure competition; includes monopoly, monopolistic competition, and oligopoly.
price taker
A seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys). A purely competitive firm is a price taker.
average revenue
Total revenue from the sale of a product divided by the quantity of the product sold (demanded); equal to the price at which the product is sold when all units of the product are sold at the same price.
total revenue
The total number of dollars received by a firm (or firms) from the scale of a product; equal to the total expenditures for the product produced by the firm (or firms); equal to the quantity sold (demanded) multiplied by the price at which it is sold.
marginal revenue
The change in total revenue that results from the sale of 1 additional unit of a firm’s product; equal to the change in total revenue divided by the change in the quantity of the product sold.
break-even point
An output at which a firm makes a normal (or zero) profit (total revenue = total cost) but not an economic profit.
MR = MC rule
(marginal-revenue-marginal-cost approach)
A method that compares the marginal revenue and marginal cost of each additional unit of output in order to determine the output level that maximizes a firm’s profit (or minimizes the firm’s loss if making a profit is not possible).
short-run supply curve
A supply curve that shows the quantity of a product a firm in a purely competitive industry will offer to sell at various prices in the short run; the portion of the firm’s short-run marginal cost curve that lies above its average-variable-cost curve.
Product ___ distinguishes ___ competition from all other market structures
differentiation; monopolistic
In a purely competitive market, price per unit to the purchaser is synonymous with ___ per unit or ___ revenue to a seller.
revenue; average
A basic feature of the purely competitive market is the presence of ___.
many sellers
The MR = MC rule is known as the:
profit-maximizing rule; loss-minimizing rule
A ___ competitive firm’s average-revenue schedule is also known as its demand schedule.
purely
The four distinct market structures are:
Pure competition; pure monopoly; monopolistic competition; oligopoly
A purely competitive firm can maximize its economic profit (or minimize its loss) only by adjusting its ___.
output (A purely competitive firm is a price taker and has no control or market power to change price. It accepts the price that is determined in the market between consumers and the sum of all suppliers.
In pure competition, economic profit is calculated as:
price minus total average cost multiplied by quantity; marginal revenue minus average total cost multiplied by quantity
A wage increase would increase marginal costs and shift the supply curve:
upward; to the left
In the short run, a purely competitive firm will maximize profit by producing up to the point where marginal revenue is equal to marginal cost if:
market price exceeds average variable cost
In a purely competitive industry, at profit-maximization, marginal ___ is equal to ___.
cost; price
revenue; price
revenue; marginal cost
Quantity supplied increases as price ___ and economic profit is usually higher at higher product ___ and output.
increases; prices
If a price is ___ than a firm’s minimum average ___ cost, the firm will not operate.
lower; variable
The marginal cost curve is the firm’s short-run ___ curve.
supply